(PatriotWise.com)- The Federal Reserve bank is cranking up the heat on inflation, trying to do everything it can to halt what has become considerably out of control.
On Wednesday, the central bank announced that it would be increasing its benchmark interest rates by three-quarters of a percentage point, the most aggressive increase it has instituted since back in 1994.
Th new range for the benchmark rate is 1.5% to 1.75% following the decision made by the Federal Open Market Committee. That marks the highest the rate has been since March of 2020.
In making remarks following the announcement, the chairman of the Fed, Jerome Powell, said:
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.”
At the same time, he also said that he would expect the Fed to raise the rates again by 50 or 75 basis points when they meet again next month. Decisions on where they interest rates will go will be made “meeting by meeting,” Powell said, and the central bank will “continue to communicate our intentions as clearly as we can.”
“We want to see progress. Inflation can’t go down until it flattens out. If we don’t see progress … that could cause us to react. Soon enough, we will be seeing some progress.”
Inflation has been increasing at the fastest pace that it’s been since back in December of 1981. That’s why members of the FOMC are being so aggressive with the change in the benchmark interest rates, and so quickly.
Projections are that the rate will end 2022 at around 3.4%. By next year, the FOMC said it would expect the rate to then increase all the way up to 3.8%. If that happens, it would end up being 1 percentage point higher than members were originally projecting back in March of this year.
At the same time that the Fed made the announcement of the rate hike, they also cut their outlook for economic growth this year. They are now projecting a GDP gain of only 1.7%, which is a lot lower than the 2.8% mark they were anticipating as of March.
Despite all of this, the committee tried to paint an optimistic picture of the future of the overall economy, despite this higher inflation. In the statement they released, members of the FOMC said:
“Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
The FOMC is currently projecting that inflation will drop sharply by 2023. To get there, though, the committee is anticipating needing to continue to raise the benchmark interest rate to 3.8%.
If that ends up happening, it would be the highest it’s been since near the end of 2007.